This Is Guernsey

By Tony Mancini

TAX is something that we all have to endure, but it is rare for a tax story to hit the headlines in the UK at a time other than the annual Budget show. So it is quite surprising to see a headline about it on the front page of all the broadsheets and to be a lead story on Newsnight.

This has happened with the proposals from the Chancellor, Alistair Darling, on the residence rules and the treatment of so-called non-doms.

So what is all the fuss about and will it impact on business in Guernsey?

Much has already been said about the proposed changes as to the way in which you calculate the number of days in the UK and thus whether you are tax-resident there.

Under these proposals, frequent travellers to or through the UK could find themselves paying UK tax at 40% even though they remain resident in Guernsey.

But what about the non-dom rules?

Under UK law, as in Guernsey, people who are tax-resident there pay UK income tax on their worldwide income.

A UK resident is also liable to capital gains tax on the sale of assets.

However, the rules are different for a person who can demonstrate that their true home (domicile) is somewhere else.

A good example of a non-dom is a Guernseyman working in the UK but intending to go home to retire.

A non-dom pays tax on all their UK income and gains, but only pays tax on foreign income and gains if they remit that money back to the UK. This is what is known as the ‘remittance basis’.

There are estimated to be several hundred thousand non-doms living in the UK, many of them working in London’s vibrant financial services industry.

These special rules make it attractive for non-doms to make use of offshore investment structures legitimately to shelter foreign income and gains from UK tax, structures that Guernsey’s trust and private wealth businesses have successfully set up and operated for many years.

Mr Darling is proposing to make two key changes to the non-dom rules.

Firstly, once a non-dom has lived in the UK for seven out of 10 years, they must pay a levy of £30,000 if they want to continue using the remittance basis.

It is estimated that a non-dom needs to have foreign income or gains of at least £80,000 to make this worthwhile. This will clearly not be worthwhile for very many non-doms.

The other changes are revised rules on what constitutes remittance and separate proposals which will remove many, but not all of the UK tax benefits of using an offshore trust or company.

At best the individual is likely to be taxed as if the structure was not in place. At worst, they may actually pay more tax.

The view of many commentators is that these changes will mean that many of those structures will be closed down.

This may have a negative impact on companies with a substantial amount of UK non-dom business.

These proposals are due to take effect from 6 April. However, the reason why the story is in the news is because they have provoked so much opposition from many different quarters.

The UK Government argues that the special rules for non-doms are unfair.

However, many people have pointed out that the

availability of these special rules has directly contributed to the success of London as a global financial services centre.

Indeed, the non-doms pay significant amounts of income tax on their UK earnings, they tend to spend a lot, thus generating VAT receipts, and typically they are not users of key public services such as health and education.

For Guernsey businesses involved in providing services to non-doms, this all creates uncertainty.

At the time of writing, there are reports that the government is considering watering down the proposals in the face of the widespread criticism.

It all adds up to a busy and unsettling time in Guernsey trust companies.